The Sheraton Hotel affair, the second Hope Royal Commission and Army counter-terrorism capability

On 30 November 1983 a training exercise by employees of the Australian Secret Intelligence Service (ASIS) went embarrassingly wrong. The exercise was intended to simulate the rescue of a foreign defector who was being held captive by foreign intelligence agents in Melbourne's Sheraton Hotel. Hotel staff had not been consulted about the exercise and when they investigated people whom they assumed to be criminals breaking down a bedroom door a potentially dangerous confrontation ensued. Weapons were produced and the ASIS team fled, pursued by the police. Several members of the team were arrested. The government was less than pleased about this debacle and Justice Robert Hope, who was already undertaking his second comprehensive Royal Commission inquiry into the security and intelligence agencies, was asked to report specifically on the Sheraton incident. His report, tabled in Parliament with some minor deletions on 28 February 1984, made extensive criticisms of the way the exercise had been planned and carried out, and of the failure of ASIS management to adequately consider what was intended. He said:

It is difficult to accept that any person could have seriously believed that the police or hotel management did not need to be notified that a group of men, armed with submachine guns, and wearing masks or balaclavas, intended to conduct a para-military exercise in and around a city hotel.

The most complex aspect of the Sheraton affair for the Commonwealth was the question of whether the names of the personnel involved could be made available to the Victorian police for investigation and possible prosecution. The Commonwealth was initially disposed to make the names available on a confidential basis, but on 15 December 1983 personnel involved obtained an interim High Court injunction to prevent this. However five of the 12 people involved reported to the Victorian police on 21 December and gave their names. The position was further complicated by the discovery that the Victorian Magistrates' Court had no power to make confidentiality orders on national security grounds. Cabinet reviewed the issue on 17 January 1984 and decided that the Prime Minister would advise the Victorian Premier, John Cain, that nothing more could be done until the High Court had handed down its final decision and Justice Hope had reported. The High Court later found that the Commonwealth had no enforceable duty to ASIS officers to keep their names and activities confidential, but nobody involved was prosecuted.

Justice Hope delivered his main reports on the security and intelligence agencies at the end of 1984 and they were considered by Cabinet during the first half of 1985. On 7 May 1985 Cabinet decided to establish the position of Inspector-General of Intelligence and Security, and to establish a joint parliamentary committee to oversee the Australian Security Intelligence Organisation. The directive setting out the functions of ASIS would be modified to exclude it holding weapons and from carrying out covert action in the form of either special operations or special political action. There would be a further submission on the collection in Australia of foreign intelligence. Hope, supported by the agencies, recommended that the operational records of the security and intelligence agencies be removed from the coverage of the Archives Act 1983, leaving the agencies to decide when and if they might make records available to the public. Cabinet decided that this issue should be considered in the general review of the Archives Act due in 1987.

On 4 November 1985 Cabinet considered a submission from Defence Minister Kim Beazley on Army counter-terrorist training facilities. Beazley noted that the Commonwealth and states had agreed on a 'hard line' strategy, under which priority was given to negotiation, concessions were only made on tactical grounds and, in the last resort, incidents would be resolved by force. The police were responsible for resolving terrorist incidents, but as they did not have paramilitary elements the Army would provide a specialist assault capability to save innocent lives as a last resort. Cabinet agreed to spend $17.2 million on developing counter-terrorist facilities at Swanbourne, Bindoon and Gin Gin in Western Australia.